As the majority of published analysts, including us, foretold of the week just past, trading action was volatile. This was especially true today with the Mar contract trading a range of 324 points. Mar is now the de facto lead month by virtue of having the greatest open interest, with the new lead month giving up 7 points on the week, settling at 69.03. Dec gave up 9, settling at 68.44.

It was an eventful week, to say the least. Although the WASE and US export reports did not post surprising results, the US presidential election most certainly did – at least to most folks who were queried. And, perhaps more surprising than Donald TrumpΆs victory, was the marketΆs delayed reaction, which has been quite impressive.

Still, what a Trump presidency may hold in store for agricultural markets – specifically the cotton market – is not straightforward with respect to elucidation.

Many economists expected a Trump victory would inspire a selloff in the stock markets and an associated devaluation of US currency, which was expected to threaten The FedΆs impending token interest rate hike. And, while such did occur, it did so (with increasing intensity) as the probability of a Trump victory increased over the early hours of the dissemination of election results.

When the dust settled, however, TrumpΆs acceptance speech seemed to quell fears and settle nerves. He emphasized economic growth, which financial markets almost universally smile upon.

Perhaps the markets collectively adapted the view that having a billionaire business tycoon in charge of the nationΆs economy does, in fact, harbor interesting possibilities.

But what can be read regarding the specifics, especially given that President-electΆs views and attitude toward economic policy as it applies to the Ag sector are less than crystal clear?

A Trump administration will almost certainly result in protectionist actions in the form of tariffs, as well as the renegotiation of established international trade agreements. While a revival of the American manufacturing sector could be associated with such a policy, retaliation by US agricultural export customers could apply drag to US agricultural export business. Given the nature of the downstream cotton industries, a strong reestablishment of the US yarn spinning industry (much less industries further downstream) seems unlikely.

The very real possibility of the renegotiation of NAFTA and other potential actions involving Mexico has caused the value of the Mexican peso (as well as that of several Latin American currencies) to tumble. Hence, short-term sales of raw cotton into these destinations have been immediately curbed. With respect to our Asian customers, China is already irritated with the Obama administrationΆs decision to haul it in front of the WTO regarding anti-dumping claims (which seem to be mostly founded and substantiated) with respect to grains.

Given that China is flush with cotton and must, per its WTO charter agreement, import only around 4M bales per year annually, China could reduce its consumption of US cotton going forward. Or perhaps it will continue to move its spinning industry offshore as it cultivates potential supply partnerships with the likes of Syria and cotton producing nations within the African Franc Zone.

On the other hand, our current export customers could opt to source larger amounts of cotton from the US prior to the initiation of the new administration, which could be potentially short-term bullish.

While a strong US economy is almost certainly a positive thing for our market, the process of attaining such could be somewhat trying for cotton producers. Although some analysts have cited the likely increase in inflation associated with the incoming administration and its policies (which they claim would raise the boat for all, including the commodities sector) the cost of production inputs could also be expected to rise in commensurate fashion.

Further, strengthening of the value of US currency will likely cause some money to flow away from commodity speculation in favor of safer and less volatile investments. Recall that the speculative sector does, at least for the vast majority of the time, hold an aggregate net long futures position, which is friendly for cotton producers.

On the other hand, the recently passed Dodd-Frank Act, which has burdened investment institutions with stepped up regulation, is likely to be repealed, and such could partially ebb the flow of speculative money away from the commodities sector.

Fundamentally, the Nov WASDE report was somewhat bearish with approximate increases to world and domestic ending stocks of 1M and 200K bales, respectively. Still, these numbers were fairly close to pre-report published expectations. We still expect that final realized US production will move somewhat lower Vs the USDAΆs revised 16.16M bale estimate, and this is in stark contrast to the prognostications of some highly respected veteran analysts.

US export sales for the week ending Nov 3 were fair, and significantly exceeded the pace required to match the USDAΆs export target, but the shipment pace continues to be disappointing.

We are still seeing a strong spot basis in the country, but our broker friends tell us that the number of merchants making aggressive efforts in the country is somewhat reduced. Combined with the quickly filling pipeline, merchants can afford to be pickier about the qualities they buy and are less likely to be aggressive across the board. This means producers may need to use some marketing finesse and be patient in their marketing. In the next few weeks, a good local broker and a firm offering price may be the best friends a grower has.

For next week, the standard weekly technical analysis for the Mar contract is neutral to bearish while money flow into the contract is bullish. US net export sales for the week ending Nov 10 could evince some improvement Vs figures put forth this week. The bulk of scheduled index fund rolling culminated today with the end of the Goldman roll. And, markets will continue to keep an eye (and an ear) on the exercises and news associated with the formation of the Trump administration.